Paolo lives in New York City and runs a business that sells boats. In an average year, he receives $723,000 in revenue from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $423,000; he also pays wages and utility billis totaling $267.000. He owns his showroom; if he chooses to rent it out, he will receive $2.000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Paolo does not operate this boat business, he can work as a financial advisor and receive an annual salary of $20.000 with no additional monetary costs. No other costs are incurred in running this boat business. Identify each of Paolo's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The rental income Paolo could receive if he chose to rent out his showroom The wholesale cost for the boats that Paolo pays the manufacturer The salary Paolo could earn if he worked as a financial advisor The wages and utility bills that Paolo pays Complete the following table by determining Paolo's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit Alternatively, the economic profit he would earm as a financial advisor would be If Paolo's goal is to maximize his economic profit, he should not v stay in the boat business.
Paolo lives in New York City and runs a business that sells boats. In an average year, he receives $723,000 in revenue from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $423,000; he also pays wages and utility billis totaling $267.000. He owns his showroom; if he chooses to rent it out, he will receive $2.000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Paolo does not operate this boat business, he can work as a financial advisor and receive an annual salary of $20.000 with no additional monetary costs. No other costs are incurred in running this boat business. Identify each of Paolo's costs in the following table as either an implicit cost or an explicit cost of selling boats. Implicit Cost Explicit Cost The rental income Paolo could receive if he chose to rent out his showroom The wholesale cost for the boats that Paolo pays the manufacturer The salary Paolo could earn if he worked as a financial advisor The wages and utility bills that Paolo pays Complete the following table by determining Paolo's accounting and economic profit of his boat business. Profit (Dollars) Accounting Profit Economic Profit Alternatively, the economic profit he would earm as a financial advisor would be If Paolo's goal is to maximize his economic profit, he should not v stay in the boat business.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Paolo lives in New York City and runs a business that sells boats. In an average year, he receives $723,000 in revenue from selling boats. Of this sales
revenue, he must pay the manufacturer a wholesale cost of $423.000; he also pays wages and utility bills totaling $267.000. He owns his showroom;
if he chooses to rent it out, he will receive $2.000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if
Paolo does not operate this boat business, he can work as a financial advisor and receive an annual salary of $20,000 with no additional monetary
costs. No other costs are incurred in running this boat business.
Identify each of Paolo's costs in the following table as either an implicit cost or an explicit cost of selling boats.
Implicit Cost Explicit Cost
The rental income Paolo could receive if he chose to rent out his showroom
The wholesale cost for the boats that Paolo pays the manufacturer
The salary Paolo could earn if he worked as a financial advisor
The wages and utility bills that Paolo pays
Complete the following table by determining Paolo's accounting and economic profit of his boat business.
Profit
(Dollars)
Accounting Profit
Economic Profit
Alternatively, the economic profit he would earn as a financial advisor would bes
If Paolo's goal is to maximize his economic profit, he should not v stay in the boat business.
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